Distributions From Canadian RRSPs Are Subject To #Obamacare Surtax While Distributions From US Plans Exempt

By way of background, Obamacare was financed in part by the 3.8% Net Investment Income Tax (“NIIT”). At the risk of oversimplification, this is a tax on passive income. What those Canadians who are also “U.S. persons” need to know includes:

2. Assuming that the NIIT is NOT a “Social Security Tax”: As is described in the following article by Toronto tax lawyer Sunita Dooby, distributions from Canadian RRSPs and RRIFs ARE subject to the NIIT. That said, comparable U.S. plans (401K and IRAs) are NOT subject to this tax.

In summary Ms. Doobay notes that:

Qualified pension plans are NIIT­ exempt under Code section 1411(c) (5), which exempts any distribution from a qualified plan and arrangement set out in Code section 401(a). RRSPs and RRIFs are not qualified plans or arrangements for these purposes.

RRSPs, RRIFs, ARE subject to the 3.8% US Net Investment Income Tax https://t.co/EBn2B9OmoO – No effect on US "qualified plans" – (401K, IRA)

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

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